We use cookies to customise content for your subscription and for analytics.If you continue to browse Lexology, we will assume that you are happy to receive all our cookies. For further information please read our Cookie Policy.

Anti-Corruption Digest - July 2013

It has been reported that Alcoa World Alumina and Chemicals, a joint venture between Alcoa, Inc. and Australian based Alumina Limited ("Alumina"), may face settlement payments with the United States Department of Justice ("DOJ") and the Securities and Exchange Commission amounting to $300 million. This relates to alleged bribes paid in Bahrain to the state-owned Aluminium Bahrain B.S.C. in exchange for raw material supply contracts in 2008.

Alcoa is said to have proposed a cash settlement of $103 million with the DOJ, but reports suggest this figure may be increased. Alcoa has said that there was "no assurance that settlements will be reached." If a settlement is not reached, Alcoa has reportedly said it would "proceed to trial".

HSBC Deferred Prosecution Agreement

The ability of the government and private parties to resolve criminal charges, including violations of the U.S. Foreign Corrupt Practices Act ("FCPA"), by entering into a deferred prosecution agreement which does not require an admission of guilt has been questioned by another federal judge.

A federal judge in New York has approved a deferred prosecution agreement ("DPA") entered into by the United States Department of Justice ("DOJ") and HSBC to resolve charges that HSBC’s anti-money laundering controls were sufficiently weak to allow drug cartels and others to launder hundreds of millions of dollars through the bank. The terms of the DPA include payment of $1.9 billion to regulators, improvements to controls, and retention of an independent compliance monitor for five years, but no admission of guilt.

In approving the DPA, United States District Judge John Gleeson expressed frustration with the DOJ’s decision to "divert HSBC from the criminal process" rather than hold HSBC criminally liable. He imposed his own requirement, that the parties file with him quarterly reports noting any "significant developments." He also stated his belief that federal judges are authorized to review and possibly reject any DPA negotiated and agreed to by prosecutors and defendants. However, he recognized that "even if I were to reject the DPA, I would have no power to compel the government to prosecute the pending charges against HSBC."

Judge Gleeson’s frustration with DPAs in the anti-money laundering context echoes that expressed by United States District Judge for the District of Columbia Richard Leon in his long-standing refusal to approve a consent decree entered into by the United States Securities and Exchange Commission ("SEC") and IBM Corp. Under the terms of that consent decree, initially entered into in March 2011, IBM would have resolved charges of violating the FCPA by paying $10 million and agreeing to various other conditions, but would not have been required to admit violating the FCPA. Judge Leon has demanded that IBM submit annual reports regarding FCPA compliance and any possible accounting violations, a requirement IBM argues is too burdensome.

And in 2011, United States District Judge for the Southern District of New York Jed Rakoff rejected a settlement between the SEC and Citigroup under which Citigroup would have paid a $285 million penalty to resolve charges that it improperly marketed collateralized debt obligations tied to subprime mortgages, but would not have admitted wrongdoing. Judge Rakoff rejected the agreement on the grounds that, without some basis upon which the court could find that Citigroup violated the law, the consent decree was "neither fair, nor reasonable, nor adequate, nor in the public interest."

TigerDirect.com

Carl Fiorentino, former president of online computer and electronic retailer TigerDirect.com, has been indicted for allegedly accepting $6.5 million in bribes from a Taiwanese supplier and over $500,000 from a Californian supplier. The indictment, issued by the United States Attorney for the Eastern District of New York, alleges that, from 2003 through April 2011, in exchange for the bribes, Fiorentino caused TigerDirect.com to purchase various components and products from these suppliers.

TigerDirect.com is part of Systemax, Inc. ("Systemax"), a top internet retailer. Systemax has announced that it fired Fiorentino in 2011 after "an internal whistleblower investigation." It has also made clear its belief that the indictment is limited to Fiorentino and will have no impact on Systemax.

A Tale of Two Governors

New York governor Andrew Cuomo has convened a bipartisan anti-corruption panel consisting of 25 district attorneys, former federal prosecutors, and others from around the state. Cuomo took this action after state lawmakers failed to enact anti-corruption legislation earlier this year. The panel’s powers will include subpoenaing witnesses and referring cases for criminal prosecution. The costs of creating and operating the panel are unknown at this time, although Governor Cuomo has indicated he will find money in the budget to cover costs.

Meanwhile, Texas governor Rick Perry has vetoed $7.5 million in funding over the next two years for Texas’s ethics watchdog, the Public Integrity Unit of the Travis County District Attorney’s Office. The unit investigates various frauds, unusual awards of state contracts and grants, and possible public corruption of elected officials. The unit employs more than 30 people, including prosecutors, investigators, forensic accountants, and other staff. Unless funding is restored by the state legislature, more than 30 employees who have already been laid off will lose their jobs permanently. Governor Perry explained his veto by stating that the Travis County District Attorney, Rosemary Lehmberg, had “lost the public’s confidence” following a recent drunken driving conviction.

The United Kingdom

Draft Code of Practice for DPAs

The Director of the Serious Fraud Office (the "SFO") and the Director of Public Prosecutions have published a consultation document for the proposed draft code of practice on the use of deferred prosecution agreements (DPAs).

A DPA is an agreement between a prosecutor and a corporation in cases of fraud, bribery and other economic crime. Where a corporation is charged with an offence, a DPA permits proceedings to be suspended and under the terms of the suspension the corporation agrees to comply with a number of conditions. These conditions may include the payment of a financial penalty, payment of compensation and cooperation with future prosecutions. If the company is not compliant with the conditions imposed on it, the prosecution may resume.

According to the SFO, DPAs will only be available to organizations, not individuals, and will be appropriate where "the public interest is not best served by mounting a prosecution." Entering into a DPA will be a fully transparent public event and, unlike in the US, will be overseen by the judiciary throughout the process.

The SFO has published a consultation document, inviting comments from interested parties. The consultation closes on 20 September 2013 and the consultation document is available here.

Labour Party Review of White Collar Crime

The opposition Labour Party has launched a review of white collar crime that proposes the introduction of a number of features from the US approach to sentencing and corporate liability. The policy document is available here.

Publication: Diagnosing Bribery Risk

Transparency International has published a practical guide to bribery risk assessment for businesses. A copy of the guide is available here.

GlaxoSmithKline

The Serious Fraud Office is reported to be investigating allegations also under investigation in China. For the full report, see the China section of the Digest.

The rest of the world

Global Corruption Barometer

Transparency International has published the findings of its public opinion survey on corruption. Some of the key conclusions drawn by the 2013 Global Corruption Barometer, which surveyed over 100,000 people from 107 countries, are summarized below:

More than one in four people (27 per cent.) report having paid a bribe in the last 12 months when interacting with key public institutions and services.

53 per cent. of people surveyed think that corruption has increased or increased a lot over the last two years.

54 per cent. of people surveyed consider their government to be ineffective at tackling corruption.

Nearly 9 in 10 surveyed say they would act against corruption. The majority of people said that they would be willing to speak up and report an incident of corruption. Two-thirds of those asked to pay a bribe say they refused.

For the report on the investigation into Alcoa World Alumina and Chemicals, see the US section of the Digest.

China

CECEP New Hope

The World Bank Group has debarred China Energy Conservation and Environmental Protection Group Technology and Investment Co. New Hope & Talroad (Beijing) Environmental Technology Co. Ltd. ("CECEP New Hope"). During its debarment, the company is ineligible to be awarded any contract financed by the World Bank Group. CECEP is also reported to be subject to cross-debarment by other international development banks.

The case is reported to have come after a World Bank financial management review highlighted various inconsistencies in reimbursement documents relating to the $86.1 million Shandong Flue Gas Desulphurization Project, in China. CECEP New Hope is alleged to have acknowledged the charges of "fraudulent misconduct."

The debarment, which took effect from June 28 2013, will last for two years and, as part of the settlement, CECEP must demonstrate full and satisfactory compliance with the World Bank Integrity standards. Leonard McCarthy, World Bank Integrity Vice President, is reported to have said, "We are pleased with the outcome of this investigation, the cooperation and active steps taken by the company to comply with the World Bank’s integrity standards following its acknowledgement of misconduct."

GlaxoSmithKline

The operations of GlaxoSmithKline ("GSK") in China are under investigation. It has been reported that senior executives at GSK China have admitted to corruption after being investigated for "serious economic crimes." In a statement, the Ministry of Public Security said, "after initial questioning the suspects have admitted to the crimes, and the investigation is ongoing." Sir Andrew Witty, CEO of GSK, has said on the matter: "It appears that certain senior executives have acted outside our process and controls to both defraud the company and the Chinese health care system."

The reports make claims of "widespread bribery" in GSK China and allege that the company used travel agencies and consultancies as vehicles to bribe both officials and doctors. Chinese investigators are reported to have alleged that GSK transferred up to $480 million to such entities. A company spokesman has stated that, "we are willing to cooperate with the authorities in this inquiry."

Xinhua, China’s official news agency, has suggested that more pharmaceutical firms could be subject to similar investigations.

Earlier claims are reported to have been made by an anonymous source that members of GSK’s sales team made improper payments to doctors. It is alleged that, according to internal documents and emails, GSK’s sales staff provided doctors in China with bribes in the form of "speaking fees, cash payments, lavish dinners and all-expenses-paid trips" in return for prescribing the company’s Botox product.

A company spokesman in London, Simon Steel, is reported to have said in an email that the company is "investigating these new claims … however, our inquiries to date have found no evidence of bribery or corruption in relation to our sales and marketing of therapeutic Botox in China." He added that "GSK has some of the toughest compliance procedures in the sector … and operate[s] in accordance with them"

It is a year since GSK settled charges in the US with a $3 billion payment. The charges related to an investigation started in 2004. It appears likely that the investigation will expand beyond GSK to other healthcare providers.

Croatia

It has been reported that an investigation has been reopened into the conduct of Zsolt Hernadi, the former CEO of the Hungarian oil and gas group, MOL. The investigation regards his alleged role in a bribery case relating to the company’s operations in Croatia and is linked to the recent imprisonment of the former Croatian Premier, Ivo Sanader. Mr Sanader was found guilty of agreeing to accept a $6.4 million bribe from MOL in return for giving them full management rights over the Croatian oil company, INA.

Reports claim that the Croatian State Attorney’s office (the "Office") has alleged that Hungary refused to question Mr Hernadi, citing the protection of the national interests of Hungary. After Croatia joined the European Union earlier this month, the Office stated that "conditions have been created to secure the suspect’s presence considering the regulations about judicial cooperation between EU members." As a result, the Office has requested Hungarian authorities to assist in handing over a summons for the interrogation of Mr Hernadi.

The Office is reported to have said, "depending on the reply from Hungary, we will decide on further actions about possibly issuing the European arrest warrant." A spokesperson for MOL said, "we continue to take the view as advised by international legal experts that the allegations are unfounded … [but] will cooperate with all relevant authorities in this matter."

Germany

Prosecutors in Germany have indicted Bernie Ecclestone, Chief Executive of Formula One, charging him with alleged acts of bribery and breach of trust. The charges relate to the alleged payment of $44 million to Gerhard Gribkowsky during Mr Gribkowsky’s tenure as Chief Risk Officer at Bayern Landesbank ("BayernLB).

At issue is whether Mr Ecclestone made illegal payments to Mr Gribkowsky, who was reportedly managing the sale of BayernLB’s 45 per cent. stake in Formula One to CVC Capital Partners ("CVC"). Mr Ecclestone reportedly said that he paid the sum to "keep him [Mr Gribkowsky] quiet", after he was put under pressure over his personal tax matters, and not to pave way for the sale of Formula One to CVC: "The tax risk would have exceeded £2billion [$3 billion]. I paid him to keep calm and not to do silly things."

In response to what Mr Ecclestone described as an "inevitable" indictment, he is reported to have said, "We are defending it properly". CVC are reported to have no immediate comment regarding the indictment, stating that the company is not part of the investigation.

Singapore

A former director of ST Electronics (Info-Software Systems) Pte Ltd. ("ST Electronics") has reportedly been charged with two counts of corruption. Mark Tjong is alleged to have received bribes of $87,000 from the managing director of Kings Shipping & Trading Company, Mujibur Rahman, in August 2006. Reports claim that court documents allege that the payments were a reward for appointing Mr Rahman as an agent of ST Electronics.

ST Electronics is part of the Singapore Technologies Engineering group, which is listed on the Singapore Exchange. The investigation is ongoing.

Slovakia

A survey carried out by CEEC Research, an Eastern European analytical and research company, found that only 41 per cent. of executives at construction companies in Slovakia believe that it is possible to win a tender without the involvement of a bribe. This figure represents an increase from the 36 per cent. quoted in the 2012 report.

The CEEC report also highlights that, in the Slovakian construction industry, personal contacts were considered the best way to win contracts and were also the best source of information about new contracts. Executives in the construction industry also reportedly said that they are aware of a quarter of tenders three months prior to their official announcement.

Spain

The Prime Minister of Spain, Mariano Rajoy, is under increasing pressure to resign following allegations made by the party’s former treasurer. Luis Barcenas testified in court that Mr Rajoy had accepted bribes over a period of years and that he had personally given illegal cash payments to Mr Rajoy.

The money is reported to have come from a "slush fund", which was alleged to be secretly maintained by the party for more than two decades. Reports indicate that the fund was used to channel bribes from construction companies and other donors to the party’s politicians.

Prior to his imprisonment in late June, Mr Barcenas is reportedly claimed to have evidence of illegal financing that could "bring down the government." Mr Rajoy has denied any wrongdoing and has shunned calls for his resignation, stating "I will fulfill the mandate the Spanish people gave me."

South Korea

The former head of the state-run nuclear power plant operator, Korea Hydro and Nuclear Power ("KHNP"), is reported to have been arrested on suspicion of accepting bribes.

Kim Jong-Shin is reported to have been charged with taking $87,000 in bribes from KHNP’s contractors. Prosecutors have allegedly found evidence in email correspondence, dating back to 2008, between Mr Kim and nuclear reactor officials, highlighting the taking of bribes. It is also alleged that prosecutors obtained testimony from an official at a contractor, that he had bribed Mr Kim.

Prosecutors have reportedly searched Mr Kim’s house to gather evidence on his alleged charge, confiscating computer equipment and documents.

United Arab Emirates

It has been reported that Sweett Group ("Sweett") is investigating allegations of "improper business conduct" regarding an alleged bribe requested by an ex-employee over a construction deal in 2009.

Cyril Sweett International ("Cyril Sweett"), a subsidiary of Sweett, was managing the construction of a hospital in Morocco. The allegations suggest that a former executive of Cyril Sweett requested that the architects, HLW International, pay 3.5 per cent. of the $5.6 million design contract. The payment, which was reportedly to secure their role on the project, was allegedly made to an official in the United Arab Emirates who was assisting with the funding of the project.

Sweett has denied the allegations, stating that, "the initial review of correspondence and project documentation shows no record of any request for, or any payment of, facilitation fees of the nature alleged." In accordance with their company policy and to "ensure rigorous investigation" of such allegations, Sweett has instructed "an independent external body to investigate [the claims]."